Point and Figure Spikes

An upward Point and Figure spike, where a rally exceeds the previous column
of Xs by at least 10 boxes. This is a signal to take profits:
spikes can reverse sharply and there is nothing worse than
seeing those hard-earned profits disappear before your eyes.

Occasionally you will be lucky enough to experience two/more
spikes in succession; so be on the lookout for a short pull-back
(no more than say 3 boxes). Re-enter if there is a short retracement
followed by a breakout above the previous high. Keep stops tight.

Thomas Dorsey (Point & Figure Charting) mentions a
long tail down pattern, where a single column of Os is 20
or more boxes, which he uses as a buy signal. I would not be that
adventurous. I suspect that successive downward spikes are more
common than successive upward spikes. If, however, a column of Os
exceeds the previous trough by at least 10 boxes, it is clearly a
signal to take profits on short positions. Exit on the start of a
new column of Xs.

Re-enter if there is a short retracement followed
by a breakout below the previous low. Keep stops tight.

At times we are all confronted with situations like this:
Caltex Australia [CTX] failed to correct sharply on the Point and Figure chart as expected.
Instead it formed a narrow consolidation after a tall spike,
before breaking out on the upside.

A narrow consolidation is a bullish sign in an up-trend.
There are two options:

Re-enter during the consolidation; or

Enter on the breakout above the previous high.

Stops can be placed below the lower border of the consolidation.

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